Matt Hooke
Baltimore Business Journal
Maryland General Assembly lawmakers heard plenty of concerns about what a legal recreational cannabis market will look like in Maryland this July during a grueling, over four-hour-long legislative session on Friday.
House Bill 556 will set up the basic template for a legal industry but many different stakeholders are worried that the bill could hurt their businesses. There are fears that the hemp industry could disappear, and the state faces a delicate balancing act in weighing the needs of current business owners, and potential new operators, along with local and state government tax revenue.
Here are three takeaways from the hearing before the House Economic Matters Committee on Friday.
Could legal cannabis end the hemp industry?
Hemp is a product derived from the cannabis plant that can be used for products such as CBD, Delta 8 or Delta 9. Hemp products often try to replicate the effects of cannabis but are unregulated, creating a flurry of public health concerns.
Representatives of the hemp industry who attended the meeting on Friday called for lawmakers to open up the recreational industry to their businesses. The current bill says that a person cannot sell any product that has more than 2.5 milligrams of THC — the psychoactive compound associated with a high — per package unless the person is licensed by the state. Nicholas Patrick, who owns the Baltimore-area hemp store chain Embrace CBD Wellness Centers, believes that the restriction would functionally outlaw the industry.
Del. C.T. Wilson, one of the bill’s main sponsors, said the intent of the bill is not to ban hemp but to crack down on hemp products that are intoxicating like Delta 8 or Delta 9.
“When a lot of us pass these bills [allowing for hemp] it was for products such as clothing, such as vehicle parts,” he said. “Nobody imagined when we talked about this that people were going to find a way to process this into a marijuana-like substance.”
Any hemp business could apply for a new recreational license. Patrick wants the state to keep the regulation as it is now. Patrick also wants to strike the language in the bill that outlaws the sale of cannabis products that aren’t derived from naturally occurring chemicals, which would functionally eliminate Delta 8, he said.
Around 70% of the hemp industry across the nation is based on CBD or Delta 8-style products, Patrick said. Eliminating the sale of those products would deprive the industry of one of its major revenue sources. Patrick is open to increasing regulation of the hemp industry, citing measures such as child-resistant packaging and mandatory testing.
“The hemp industry is eons ahead of the cannabis industry in terms of researching and developing products,” Patrick said. “And now you’re going to take potentially take the products that the hemp industry created, give them to the cannabis establishment and lock the door behind you.”
Will current operators be sidelined?
Existing operators had two main issues with the proposed law. They took issue with restricting the ability of owners to transfer a license five years after they receive a license. They also worry the state is creating too many licenses.
Owners like Christina Betancourt Johnson are worried that the provision that limits transfers could restrict access to capital by putting a restriction on the sale of equity in a business. Licensees like Johnson, who received their licenses in 2020 or after as part of a push by the state to make the industry more diverse, are getting into the cannabis industry far later than those who received the original licenses and many are still not up and running. These businesses still have to pay a fee in order to get a recreational license even though they haven’t had the chance to earn revenue like established companies.
“We haven’t had time to make money,” Johnson said. “Expecting us to pay into this sector is, I think, a tall order.”
Hope Wiseman, founder of the dispensary Mary and Main, shares Johnson’s concerns about the licensing fees. The current bill establishes that business owners can only own up to two dispensaries. Wiseman believes that the restriction will make it harder for Maryland businesses to grow or even become multi-state operators.
“If you allow businesses to scale and do what they do best. If you allow me to scale and do what I do best, I can be successful,” Wiseman said.
Del. Wilson believes that restrictions on ownership are necessary so out-of-state operators do not dominate the industry. Without hard restrictions on sales, someone could get a license, sit on it, and then sell it to a multi-state operator for a big profit. A dispensary in Cumberland sold for $10 million recently, not including the real estate of the dispensary, which gives a hint at how valuable just a license can be.
“The big boys tend to run out the small ones,” Wilson said. “That happened with every convenience store or gas station.”
Other operators are concerned that the state is creating too many licenses. New business opportunities are necessary because of the expected increase in demand for cannabis and to make a more equitable industry with stronger minority ownership. Many existing operators are worried that if the number of new businesses increases supply too fast, prices could plummet.
Will Maryland municipalities get enough tax revenue?
Representatives of the Maryland Municipal League, a body representing over 170 mayors across the region, want more government money to go to local municipalities. Local jurisdictions would get $900 in tax from $1 million in sales under the legislation. Theresa Kunes of the Maryland Municipal League believes that the low amount of money will not make up for the increased costs municipalities may incur because of the need for increased police training, public education, zoning work and other local government functions.
Michael Sanderson, executive director of the Maryland Association of Counties, is concerned that rules around local zoning could be too open-ended. The current bill says communities are allowed to “establish reasonable zoning requirements” for cannabis but does not go into detailed language about what that would mean, he said.
“You put us on a pier where everyone’s going to sue,” Sanderson said.
Maryland is taxing cannabis at a very low rate compared to other states, said Lawrence Grandpre, the research director for Baltimore think tank Leaders of a Beautiful Struggle. The bill would start taxing cannabis at 6%, increasing that tax rate by 1% a year until 2028. Most states have a tax rate for cannabis at around 15%, Grandpre said. This more relaxed tax system could be leaving millions of dollars on the table that could be used for government programs. By starting at a 10% tax rate instead of a 6% tax rate Grandpre believes the government could make millions of dollars in additional revenue.
“On a $100 cannabis purchase, that’s a difference between $110 and $115,” Grandpre said. “I don’t think that’s substantial enough to deter people to the black market.”
Wilson believes that the government should not view cannabis as a revenue generator and should instead focus on eliminating the black market. The elimination of the black market often requires a low enough tax so illicit dealers can’t compete with the legal market.
“I’m not here to create a cash cow for the state, just a marketplace for the intoxicants,” Wilson said. “I’m here to make sure we can stop young folks from being arrested and dying because of this substance. We’re here to try and regulate this so we can have a safe usage and basically get rid of the black market.”